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Avoid Insurance With 20% Down

Starting this week you’ll need just 20% down to avoid mortgage insurance fees.  The old law was 25%, and it’s been around for 40 years.

This change should save you about $2500, for example, on a typical $300,000 home.  The savings includes the mortgage insurance fee itself and the interest you pay to borrow for the fee. 

The savings will apply to both new purchases and refinances.

The only ones not celebrating this new law are CMHC, Genworth and AIG insurance.  They’re about to lose a nice chunk of insurance premium revenue.  Fortunately, according to Jim Rawson from Invis (as quoted in The Star), competition among Canada’s mortgage insurers should prevent them from raising premiums to offset this revenue loss.

Key Point:  Jim also notes that it doesn’t always make sense to defer buying a home while saving for a 20% downpayment.  For example, if you currently have 18% down, and it takes you 12 months to get the other 2%, even a tiny appreciation in home prices during that time could offset the mortgage insurance fees you’re trying to avoid.